Will online realty auctions work?
I ask because one of Britain's most respected residential sales websites, www.zoopla.co.uk, is launching an online auction. If any existing site can make it work, Zoopla can – its current sales service is popular, professional and efficient. So between February 11 and February 14 about 150 low-price repossessed homes will be auctioned on line, leading to weekly auctions thereafter.
Agents will be able to auction properties on their books at these weekly online events – Zoopla will pay them a 0.25 per cent fee (on top of whatever fee the agents get from individual vendors) to help kick-start the service and give it a critical mass of successful sales.
Zoopla has clearly thought about this carefully. Properties may be entered by agents up to 30 days prior to the auction commencing, during which time any prospective buyers can arrange viewings via the agent and carry out due-diligence. The auction platform offered by Zoopla.co.uk will provide agents with the ability to offer vendors a unique, additional route to market, on top of the 'old fashioned' method.
Agents and vendors will agree a reserve price before the property is entered into the auction and successful bids will be binding on the buyer. Only properties represented by estate agents, lenders and developers will be permitted on the auction platform – private sellers will not be able to participate. Alex Chesterman, Zoopla's successful CEO (he has led video hire websites and has assembled a Zoopla team consisting of well-respected ex-Amazon and ex-Gumtree personnel) says "live online bidding [will be] the future of property auctions".
But is it the future of property selling in the United Kingdom and across the world? The jury is out, at least for now.
There have been past experiments in online auctions which have not been conspicuously successful. As far back as 2001 in the UK there was thePropertylot, Propwatch and Homes4Living all experimenting with online auctions at a time when internet penetration and awareness was extremely low compared to today's level.
Unsusprisingly, these pioneer sites had relatively few bidders.
One excuse at the time was that the marketing budgets for the websites were very low – true, and not a problem for Zoopla, which is advertising its online auction service in newspapers, on the internet and on social networking services.
A separate excuse back in 2001 was that buyers were too cautious and would not commit to properties they had not visited.
Again, that should not be a problem for Zoopla, which is using the online auction platform only for repossessed properties – that means the likely bidders will be investors, who may be relaxed about buying homes that are low cost and low risk, without seeing them. In any case, if buyers do want to inspect or even conduct a survey, Zoopla allows them time to do this. And what of the eventual sale price? Zoopla, participating estate agents and enthusiastic vendors no doubt hope that online buyers – perhaps less familiar with the details of a property than if they were at a 'physical' auction in a room – may be inclined to bid higher over a longer period.
Instead of getting carried away in a frenzied physical auction (a genuine risk for inexperienced bidders) Zoopla's system may anticipate buyers being worried at being constantly outbid each time they look at the website.
Then perhaps, just as in the dying minutes of an eBay auction, the surviving bidders may slap in fast and furious offers, pushing up the final sale price. If this happens, then online auctions may even achieve above market prices instead of the typical below market prices which characterise old-style auctions. If online auctions produce this result, will they deter buyers from participating?
Will they be seen as an expensive alternative to the current auction or private treaty sales process? If so, they will be signing their own death warrant.
But if they defy expectations and allow buyers to snap up low-cost investments, they may become the new way for landlords or commercial property investors to expand their portfolios. The prize for Zoopla or whoever finally cracks how to auction property online will be considerable. It is no exaggeration that success could change the way millions of residential and commercial properties are sold in the future.
Time will tell, and no one can be sure which way it will go. In another decade, we may be adding this new experiment to those back in 2001, which were valiant but ultimately unsuccessful; or we could be saying that in 2010 the property industry changed forever.
- Graham Norwood is a Property Correspondent for The Observer
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